On 4 August 2017, the Chairman of the ACCC, Mr Rod Sims, confirmed a major shift in ACCC policy towards “more intensive information-gathering” when it is reviewing contentious merger proposals.1
The new approach in contentious merger cases will include:
As a consequence, the duration of informal clearance reviews of contentious mergers will be prolonged. A look at the ACCC’s past practice reveals that the average review period of “complex” mergers2 has decreased from close to 30 weeks in the period 2011-2012 to around 20 weeks more recently.3 The new approach is likely to reverse this trend.
The objective of the new approach is “to gather substantially more evidence for future Tribunal applications or Court proceedings”. The new approach reflects the fact that more informal clearance outcomes are being tested, including before the Australian Competition Tribunal (Tribunal) on public benefits grounds.
In the most recent Tabcorp/Tatts case, for example, the parties applied to the ACCC for informal merger clearance and, following public market enquiries, the ACCC released a Statement of Issues (SoI) expressing a preliminary view that the proposed merger raised (only) one competition issue of concern (even though the ACCC identified five further issues that may raise competition concerns). Four days later, Tabcorp lodged an application for merger authorisation with the Tribunal and withdrew its ACCC application. The Tribunal granted authorisation subject to a court-enforceable undertaking around three months after the application. The ACCC appealed the Tribunal's decision and, on 20 September 2017, the Federal Court set the decision aside and referred it back to the Tribunal for further consideration.
The ACCC is concerned that its current approach does not result in “adequately probative and persuasive evidence for Tribunal or Federal Court” proceedings. This includes, in particular, evidence that “tests the claimed commercial views presented by the merger parties' executives at the time of the hearing” which “seem to have been very persuasive in the recent merger cases” even without quantitative analysis or corporate strategy documents supporting these claims.
The new approach will not apply to the vast majority of mergers that are cleared by the ACCC by way of “pre-assessment”, without conducting any public market enquiries. In the last two financial years, close to 90% of all merger proposals notified to the ACCC were “pre-assessed”, with almost three quarters of those mergers obtaining ACCC clearance within three weeks after notification.4
Only approximately 10% of merger notifications are subject to a more thorough public review including market enquiries. However, the ACCC will not apply its more intensive information-gathering approach to all of those mergers. In particular, clear-cut cases which “present significant and clear competition concerns” are more likely to be resolved by the parties offering remedies or abandoning the transaction and therefore will not, as a general rule, require the collection of large amounts of evidentiary materials.
Rather, the new approach is designed for the relatively small number of “marginal” cases, namely those that “are most likely to end up being litigated”.
The new approach will have significant implications in contentious merger scenarios. For the informal clearance review of contentious mergers, it will result in:
To counter possible criticism from the business community, the ACCC Chairman provided assurance that: